Net income for the period fell 31 percent. Revenue fell more than six percent to $2.04 billion, its first year-over-year quarterly decline this decade.

An ugly showing, which eBay (EBAY) blamed on a softening consumer economy and “tough holiday season.” But there’s another force at work here as well: skeptical eBay sellers irked by recent changes to the company’s auction fee structures. They’ve been abandoning eBay for rivals like Amazon (AMZN), Etsy, and Bonanzle, and the company has suffered from their departure. According to Nielsen, traffic to eBay.com was flat year over year, decreasing three percent from a three-month average monthly unique audience of 66.5 million in Q4 2007 to 64.7 million in Q4 2008. Worse, eBay’s gross merchandise volume–the total value of all goods sold over the site–fell 16 percent year over year.

That’s concerning because by all rights GMV really should be growing. What do consumers do during financially uncertain times? They look for deals that will stretch their shrinking budgets. Apparently fewer and fewer of them are doing that on eBay these days because higher fees and other changes the company’s made to its auctions have resulted in fewer bargains. As Digital Daily commenter Rolin Bach aptly noted earlier this week, “To be successful online, you have to offer something better than the department store down the street. This is why eBay is failing. Wal-Mart has better prices. Buying on eBay is not a deal anymore. Not now, not tomorrow, not ever.”

Given sentiments like that, it’s no wonder eBay’s shares have lost more than half their value over the last 12 months and will in all likelihood continue that downward trend in the months ahead. “Seller discontent with eBay is on the rise due to higher fees and other changes, and we believe eBay has seen numerous sellers migrating away from the eBay platform and creating their own selling sites,” Brian Blair and Ryan Hunter of investment research firm Wedge Partners wrote last September. “We don’t have a handle on how much of the slowdown is due to economic conditions and how much is due to competition and execution, but we do believe a decline in these key metrics presents continued risk for the company.”

Indeed. Especially since eBay management has a very different perception of the changes it’s brought to the buyer/seller community. Consider these remarks from eBay CEO John Donahoe, delivered during an event at Legg Mason Capital Management in September 2007:

We set out a year ago to think about how we could change before we are forced to change. We took a good look at ourselves in the mirror and didn’t like everything that we saw. We saw a very successful business and a lot of momentum but we saw that our user experience and ability to satisfy our buyers and sellers wasn’t what we wanted it to be. By using a real focus on the customer, we embarked on a series of fundamental changes that will ultimately span a three-year period. We started by creating a future vision. This was critical because not everyone felt the impetus to change, given the amount of success we were experiencing. There’s a real push to keep doing what you’re doing because it’s working. We dove deeply into an understanding of our customers, their needs, their unmet needs, and their alternatives….We had to create a mind shift at our company–we had to think bold and not just incremental. We had to create a vision of the future so people could let go of a very successful past. We had to understand that this wasn’t going to just happen overnight. While we’re doing this, we’re running a successful business. We need to drive these principles of disruption at the same time that we’re executing a very successful business.”

Just as the atom bomb was the weapon that was supposed to render war obsolete, the Internet seems like capitalism’s ultimate feat of self-destructive genius, an economic doomsday device rendering it impossible for anyone to ever make a profit off anything again. It’s especially hopeless for those whose work is easily digitized and accessed free of charge.

— Author Tim Kreider on not getting paid for one’s work

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